Over the past few months, one part of the UK economy – the steel industry – has been grabbing the news headlines, but for all the wrong reasons.
Tata Steel’s announcement of another 1,050 job losses at the firm is just the latest blow to the industry.
The cuts come on top of the 1,200 jobs axed at the Indian-owned giant just last October, and the 720 jobs it cut in July and is part of an industry-wide cull.
In October, Thailand’s SSI announced it was closing down its Redcar works with the loss of 2,200 jobs, then parts of Caparo Industries’ steel operations went into administration putting 1,700 jobs potentially at risk.
The steel industry says it has been hit by a combination of factors: the strength of the pound, relatively high electricity prices, the extra cost of climate change policies, and competition from China – there have been allegations that Chinese steel is being sold in the UK at unrealistically low prices.
So what’s the truth of it all – just why are significant parts of Britain’s steel industry in such trouble?
What’s behind the current crisis?
Demand for steel worldwide has not returned to pre-financial crash levels. With economies – particularly China’s – still seeing weak growth, global demand for steel is set to remain sluggish, falling by 1.7% in 2015 and rising by 0.7% in 2016.
A strengthening pound has been one of the factors making UK steel expensive on the international markets.
In summer 2015, sterling reached a seven-year high against a basket of currencies, after Bank of England Governor Mark Carney signalled the first rise in interest rates since the crash could sooner than expected.
At the same time, global steel prices have fallen sharply. Meanwhile, China’s own economic slowdown has led Chinese producers to seek export markets as their home demand has stalled.
As a result, UK imports of Chinese steel have increased dramatically. In 2014 the UK imported 687,000 tonnes of steel from China compared to 303,000 tonnes the year before.
It is true that the UK’s steel imports from the rest of the EU are much higher – 4.7 million tonnes in 2014, but crucially China is selling its steel at much lower prices.
According to Eurostat, the EU’s statistics agency, EU steel imports into the UK cost on average 897 euros a tonne in 2014, while Chinese steel imports were just 583 euros a tonne – leading to accusations that it is selling at unfairly low prices.
High energy costs for energy-intensive businesses like steel production are also a factor, says the industry, added to by the extra cost of climate change policies. UK Steel, the industry body, says government policies to compensate steel companies for these extra costs have been coming in too slowly.
There are also strict EU rules that restrict how much support governments can give to particular industries.
How many jobs are at risk?
Almost 20,000 people are employed in the steel sector, and more than one in six are now either losing their jobs or at risk of losing them.
Britain’s biggest steel producer, the Indian firm Tata, which employs around 17,000 in the UK, has just announced another 1,050 job losses in steel operations.
The cuts come on top of the 1,200 jobs it already axed last October and the 720 jobs it cut in July.
Also in October, the country’s second-largest steel producer, Thai firm SSI, said its Redcar works on Teesside, would go into liquidation with the loss of 2,200 jobs.
At the same time, Caparo Industries went into partial administration, putting 1,700 jobs at potential risk.
Is it really all China’s fault?
The industry blames cheap Chinese imports for a collapse in steel prices.
Image copyright Getty Images Image caption Chinese steel producers are accused of “dumping” exports in the EU.
It is certainly true that China’s dramatic economic growth since liberalisation started in 1979 has been one of the key drivers in the global steel market.
It is now the world’s biggest steel producer, accounting for around 822 million tonnes a year. The UK, which produces just 12 million tonnes a year, is a minor player in terms of absolute output, but has sought to specialise in high-quality, high-value steel products.
With China’s market slowing, their producers have been looking for export markets, such as the EU.
This has led to accusations of unfair competition, that Chinese producers are “dumping” steel products on overseas markets – that is not just selling them cheaply, taking advantage of their lower production costs, but actually selling them at a loss.
In 2015, the EU imposed anti-dumping duties for six months on some steel imports from China and Taiwan. The EU and China have already clashed over the alleged dumping of products ranging from wine to solar panels to steel pipes.
UK steelmakers have also blamed high energy costs, green taxes and the strong pound for their difficulties, saying that compared to foreign competitors the cost of making steel in the UK is too high.
How important is steel for the UK?
Steel itself is vital for just about everything we use. Whether it is buildings, clothes, chemical, cars, lamps or drinks cans – all depend on it at some point.
As we’ve seen, almost 20,000 people are directly employed in the steel industry. Given the total UK workforce is 30 million, that’s just one in 1,500 jobs. But crucially steel is not a labour-intensive industry – automation and computerisation has seen to that – so raw numbers are not the whole story.
Image copyright Getty Images Image caption Almost 20,000 are directly employed in the industry, but thousands more depend on it for work
Many argue that this is not just a crisis for the steel sector, but one affecting UK manufacturing in general, which accounts for roughly 10% of UK economic output.
This is because beside the job losses already announced, there will be an impact in other allied sectors – on steel processors, distributors, scrap metal dealers, metal traders and other metal product manufacturers.
What can the government do?
The industry is clear what it needs: lower business rates, a relaxation of carbon emissions targets for heavy manufacturers, more compensation for high energy prices, and a commitment that British steel is used in major construction projects.
The government held a steel summit in Rotherham in October to discuss what could be done.
Image copyright Getty Images Image caption The government is under pressure to do more to support the sector
It says it has already taken “clear action” to help the industry, “through cutting energy costs, taking action on imports, government procurement and EU emissions regulations, meeting key steel industry asks.”
But industry trade body UK Steel, says it still needs to do more.
“The work it’s doing to help us is good but we need much further action taking place to tackle the imports, the flood of Chinese steel into the UK and the European economy.
“We need to see government and the European Commission tackling that head on and quickly,” Gareth Stace, director of UK Steel, told the BBC.
Source: http://www.bbc.com/news/business-34581945 (Tim Bowler).
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